NZ brain drain in decline

When Australian growth figures were released a fortnight ago, many in New Zealand sighed and carried on: the cross-Tasman brain drain – now 1000 people a week – was clearly set to continue apace. But will it?

New Zealand’s national character could fairly be categorised as Scottish Protestant. It is a culture that easily lends itself to dour pessimism. But a closer look reveals that compared with Australia’s south-east, NZ’s economy is travelling rather well.

The nation’s pessimism, while natural, is misplaced. The economy is growing, albeit slowly.

Though in the past two quarters growth has averaged 1.7 per cent, it is projected to rise to more than 3 per cent this year as earthquake rebuilding gathers pace.

There is spending restraint in place; it is modest, but is consistently applied. There is a cautious reorganisation of the public sector under way. Unemployment fluctuates around a percentage point higher than in Australia.

Crucially, compared with Australia, NZ has a pro-business government in which politics have been rendered boring by relative competence.

Prime Minister
John Key
’s approval ratings still make him easily the most popular leader in advanced economies and his National Party is polling at 44 per cent of the primary vote.

Under the Australian electoral system, this would be a crushing lead but under NZ’s proportional voting system it means that the Labour-Greens-sundries bloc is ascendant.

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Indeed, despite the government’s policy timidity on many fronts, Kiwis should have reason to be bullish. For the first time in close on 15 years (and indeed, hopefully reversing a trend of a generation) a subtle change may be taking place. New Zealand is starting to take jobs from Australia.

Woolworths shifted 40 contact centre jobs to Auckland in April and Imperial Tobacco says it will shift cigarette manufacturing from Sydney to NZ. The food production industry has already shifted jobs from Australia.

Key and Finance Minister Bill English want to lure more businesses in Australia to base more operations in NZ.

This is a sensible strategy considering that NZ has a comparative advantage in the regulatory and labour side.

Merrill Lynch’s “ease of doing business" survey ranks NZ third compared with Australia in 15th place. On unit labour costs, Australia is highest and NZ is well down the list.

The International Labour Organisation says Australian manufacturing workers made on average $US35 an hour in 2008, compared with $US20 an hour in NZ.

But given the small size of the NZ market, such regulatory advantages need to be substantial to attract investment and operations.

In trying to attract companies to the country, the Key government seems quite happy to cut deals to get businesses to shift or to see the government’s preferred options pursued.

This is leading to a re-emergence of the once fashionable “New Zealand Inc". This concept is useful in branding the nation’s tourism image, advancing business attractiveness for foreign investors, and pursuing policies such as the free-trade deal with China.

But it also leads to misguided thinking, where the government seems to be wrongly treated as a corporation, with the Prime Minister as chief executive, along with accompanying powers and prerogatives. Aside from the hubris inherent in this approach, it can lead to “picking winners". In this, NZ’s track record is even poorer that Australia’s.

Mining is to thank for a lot of Australia’s growth. The reported growth of Western Australia and Queensland was staggering, whereas both NSW and Tasmania have been in negative territory for the past few months, and Victoria and South Australia are sluggish.

The brain drain will reflect this sooner or later. Most Kiwis who pack up for a non-specific “better life" move to Brisbane, Sydney or Melbourne – where economic growth has been moribund and, apart from mining-related jobs, may offer no better prospects than those in NZ.

As it is, NZ is worth watching.

Observers of Australia can see that even with the mining boom, all is not well in the lucky country as the dependence on the boom has driven up the dollar, rendering other industries less competitive.

Business is concerned about Australian politicians of both stripes. Meanwhile, after years of lagging, its next-door neighbour may be getting its mojo back.